Before concluding something so quickly and learning lessons from a story half written... it is better to understand the complete story... may be knowing little bit more about the issue will change the
lessons also...
The recently concluded sale of 1,800-MHz spectrum through
auction to telecom service operators, or telcos, has been declared a damp squib
for two reasons: One, only five telcos participated in the auction; and two, the
bids added up to Rs 9,407 crore (Rs 94.07 billion), which was less than a third
of the Rs 30,000 crore (Rs 300 billion) the government had thought it would
collect.
The numbers look even more appalling when analysed in some detail. The
government has been able to sell less than 20 per cent of the Rs 48,000 crore of
spectrum (GSM and CDMA combined) it had put up for bids.
The CDMA auction failed totally because there were no takers. Even if you ignore that
failure, the numbers don't look attractive: In the 1,800-MHz band, the
government has been able to get only 27 per cent of the base price.
Telcos blame the government for misreading the market and keeping the base price too
high for anyone to be interested.
Yet, scratch the surface and the story begins to look different. If the
overall revenues that the government has been able to garner were poor and
interest in the auction from operators looked lacklustre, it was because of just
three telecom circles where there were no bidders – Delhi, Mumbai and Karnataka – of the 22 the country is divided into.
(Rajasthan didn't see any bidding, too, but that could be a different story.) That happened because the
base prices of these circles were unusually high. The reason for that is simple:
The base price for the current round of auction was benchmarked on the prices
discovered during the auction of spectrum for third-generation, or 3G, services
in 2010.
Competition for these circles in that auction was stiff because telcos rightly
assumed that data traffic would be heavy here.
That is why the base price became very high in these three hot circles in the latest auction.
The three circles together constituted as much as 48 per cent of the total base
price of Rs 14,000 crore (Rs 140 billion) for pan-Indian spectrum of 5 MHz.
Since these circles went unbid, the entire auction looked like a disaster.
If these three circles are kept aside, the total earnings of the
government do not look so bad:
The collections are 67.9 per cent of the total
base price - not really a failure.
So far as fewer bidders are concerned, especially when compared to 2008, when there
was a literal stampede for spectrum, it is worth noting that this time around,
five telcos were in the fray, even though the spectrum was almost ten times more
expensive than in 2008.
And that it hasn't got the government what it had hoped for doesn't mean the initiative has flopped.
"There is no requirement anywhere that all the spectrum available needs to be sold at
whatever price. Spectrum is valuable and it can be auctioned again with the same
base price and operators must get used to paying a premium, " says a former
office-bearer of the Telecom Regulatory Authority of India.
Telcos, battling low tariffs (phone calls in India are among the cheapest in the
world), shrinking profits and massive debts, have naturally argued that the base
price in these three circles was out of sync with the demand or the situation on
the ground.
Rajan Mathews, the director-general of the Cellular Operators' Association of India, or COAI, the lobby group, says: "There is a
need to recalibrate the price in these circles which was kept so high compared
to their revenue potential that no one saw any value in even bidding for those."
Operators argue, for instance, that the base price for Tamil Nadu was kept at Rs
306.09 crore, while it accounts for 8.75 per cent share of the overall telecom
revenue.
Operators have bid smartly in the auction: They have gone for many circles that have
been reasonably priced and account for a healthy share of the country's telecom
revenue. One case is that of Vodafone, which has picked up additional spectrum
in as many as 14 circles.
A senior executive of the company says: "We have bid and won additional spectrum in circles where the base price has been
reasonable and where the market is growing, for which we would require more
spectrum".
So, while Vodafone has won spectrum in circles which
constitute 44.67 per cent of the total telecom revenue, the value of these
circles is only 22.85 per cent of the total base price (for pan-Indian
spectrum). This makes these circles an attractive target.
Interestingly, the top-five circles in terms of the number of blocks sold (seven to
11) - Bihar, UP (west), UP (east), Gujarat and West Bengal - are also attractive
in terms of the price- value equation.
While together they contribute over 24 per cent of the total telecom revenue, their share of the base price is
nearly half, at 13.6 per cent.
Telenor has cleverly decided not to bid for the expensive Mumbai circle,
apart from Kolkata and West Bengal, even though it currently has subscribers in
these circles.
That is because if it had done so, it would have had to
pay a staggering 51.96 per cent of the total base price to get into circles
which have 50.06 per cent of the overall telecom revenue.
That would have been unwise. What Telenor has done instead is to bid for circles
which constitute 37.17 per cent of the telecom revenue, but whose share in the
total base price is 28.5 per cent.
Idea Cellular just stuck to the circles which it had lost due to the Supreme Court order cancelling all licences
handed out in 2008 (under the first-come, first-served policy) when Andimuthu
Raja was the telecom minister.
Videocon was cashing in on the fact that its outgo in the auction would be neutralised by the Rs 1,658 crore that will
get adjusted under the auction policy. The government has agreed to adjust the
money that the operators paid for the cancelled licences.
Finally the doomed 2G auctions happened and it taught all of us a few lessons:
1) Nobody is culprit until proven
2) Understand the valuation business before blaming(I can get other valuations to show even a bigger loss or smaller loss, comparables are on us to choose from)
3) Revenue earning is not the primary and main goal of government but it is CAGs job to see maximum rev. opportunities
4) CAG has no duty to comment government policies, govt works for citizens, CAG audits finances
I hope we all will take our due lessons in further debates
